GLOBAL:
The global Sukuk market is currently seen to operate as a collection of
regional or local markets. This notion was expounded in a report released
by S&P entitled, “Despite Players' Global Aspirations, Lack of
Integration Keeps Sukuk Issuance a Local Affair”.
According to S&P, over the past 10 years, local Sukuk issuances in
Malaysia and the GCC countries have helped fuel impressive growth in
domestic Sukuk. However, of the US$117 billion in Sukuk issued in 2013,
only 16% were termed “international” (listed on major exchanges and
generally issued in hard currencies, such as US dollars). Based on
S&P estimations, since 2001 only 20 international Sukuk issuances
were made from issuers domiciled outside the abovementioned countries,
accounting for approximately US$10 billion. For the year 2013, issuers
outside these two core markets contributed only US$3.8 billion out of
US$18.8 billion in international Sukuk issuances.
In an exclusive interview with Islamic Finance news yesterday,
Mohamed Damak, primary credit analyst at S&P pointed out contributing
factors to the popularity of domestic Sukuk issuances. “The structure of
the market and the fact that a significant amount of issuance in Malaysia
is done by the central bank (US$50 billion in 2013), offers a liquidity
management instrument in local currency to banks operating in the
country. In 2007-2008, issuers from Malaysia contributed to less than 50%
of the issuance while in 2013, it contributed to almost 70%,” said Damak.
In addition to that, Damak explained that high local currency liquidity
in some markets and high demand for Sukuk in areas such in the GCC are
also the reasons as to why issuers turn to the local Sukuk market.
The premium for international Sukuk issuances has not deterred issuers in
coming to the market. However, a higher level of clarity and
standardization in terms of documentation and default resolution
mechanisms may assist in lowering issuance costs and reduce yields to
comparable levels with conventional bonds. Based on the report, interest
from issuers outside traditional markets has increased, due to the fact
that Shariah compliance attracts deep-pocketed Middle Eastern and Asian
investors. In the near future, S&P expects this premium to reduce as
Sukuk documentation becomes more standardized and liquidity stronger.
“We think that after the slowdown last year, with Sukuk volumes declining
by 13%, we anticipate that the Sukuk industry will expand again in 2014,
partly driven by corporate and infrastructure issuers in the Gulf.
Indeed, we believe that total issuance will exceed US$100 billion for the
third year in a row if yields remain attractive for issuers. We also
believe issuance could pick up again in Malaysia in 2014 as its
investment program resumes,” commented Damak on his market outlook for
the coming year.
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